The case of Theberge-Linday v. 3395022 Canada Inc., 2018 ONSC 3222 that just came out is SO important for dentists for SO MANY REASONS!
This seminal case will cause many dentists to think about how they’ve structure or plan to structure their employment relationships and how they can land in SERIOUSLY hot water by not introducing staff contracts PROPERLY or by terminating someone without giving them proper notice.
So let’s dig deep into this case, shall we?
JUST THE FACTS PLEASE…
In 1993, Jasmine Theberge-Lindsay (“Jasmine”) was hired by Dr. Victor Kutcher. Dr. Kutcher wasn’t incorporated at the time. Jasmine didn’t sign any written agreement when she started working.
In 1999, Dr. Kutcher created a management company called 3395022 Canada Inc. (“3395022”) to provide hygiene services to his practice. It was done solely for income splitting purposes: Dr. Kutcher’s wife and a family trust were the shareholders of that corporation. P.S. because of the new Liberal Government changes to the Income Tax Act, having a hygiene corporation is no longer an effective way to save taxes (except in certain limited circumstances). Thanks Liberals! But that’s another story altogether…
So in 1999, an employment agreement was presented to Jasmine. That agreement attempted to limit the liability of the employer, 3395022, should it terminate Jasmine without cause (meaning without her having done anything wrong). Importantly, it said that in these circumstances, Jasmine would receive “notice or payment in lieu of notice in accordance with the Employment Standards Act, 2000, S.O. 2000, c.41”. The agreement did not change any term or condition of the employment relationship. The big change was that 3395022 would pay her wages. Jasmine reviewed the agreement and signed it. 3395022 never signed the agreement though.
Interestingly, Jasmine gave Dr. Kutcher a letter dated March 28, 2005 saying that she was resigning effective July 7, 2005. She was leaving because she was engaged to be married and she was leaving to go work in Guelph after July 7, 2005; but the engagement fell apart and Jasmine wanted to remain employed as a hygienist at the office. So on June 30, 2005, Jasmine received and signed ANOTHER employment agreement between herself and 3395022. Once again, the agreement limited the liability of 3395022 if it wanted to terminate her without cause by giving notice or payment in lieu of notice in accordance with the Employment Standards Act. There was no changes in this agreement to the employment relationship. But this time, Dr. Kutcher signed the agreement on behalf of 3395022.
Next, in 2011, Dr. Kutcher decided to wind up the operations of 3395022 and to switch all the hygienists over to his professional corporation, called “Kutcher Dentistry Professional Corporation”. This was because laws changed to allow dentists to incorporate their dental practices in 2006. So on October 11, 2011, Dr. Kutcher advised Jasmine that her contract with 3995022 would expire December 31, 2011 and that she would from that point forward be an employee of Kutcher Dentistry Professional Corporation. In May 2017, 3395022 was dissolved.
On December 22, 2011, Jasmine received and signed an employment agreement between herself and Kutcher Dentistry Professional Corporation. She had to sign before December 31, 2011 in order to continue her employment. She received independent legal advice before signing and the agreement was slightly modified as a result. The agreement was also modified to remove an obligation to pay eight (8) weeks’ of pay in lieu of notice if Kutcher Dentistry Professional Corporation dismissed her without cause. Again, if Kutcher Dentistry Professional Corporation terminated Jasmine, she would receive notice or payment in lieu thereof in accordance with the Employment Standards Act. None of the other terms of the employment relationship changed.
Finally, on December 20, 2012, Jasmine received notice that her employment was being terminated without cause on that day; she was being provided of one (1) week’s pay in lieu of notice based on the 2011 employment agreement she signed. That’s $1,207.85. The reason for terminating her? Initially, it was because the practice was being re-organized. But later, Dr. Kutcher testified that it was because she was constantly late and showed a lack of effort to sell supplements at the office.
Law School Exam?
So far, it seems like a law school exam:
- 3 contracts, but the first one wasn’t signed.
- Nothing really changed in those agreements except who the employer was.
- She resigned, right? Maybe not.
- Was the termination clause valid and enforceable in the agreements?
- But were the agreements valid because she didn’t receive anything (any new benefit) in exchange for signing the agreement(s)
- Did the employment relationship continue or was it severed every time she signed a new contract or the employer switched?
- Was the employer entitled to terminate her based on just cause (i.e. for being tardy and for not being able to sell supplements?)
The Ontario Superior Court of Justice sided with Jasmine! They ruled that she had been Dr. Kutcher’s employee for 19 years and gave her 15 months of notice.
First, the court found that Jasmine’s employment had gone uninterrupted as a hygienist from 1993 to 2012. That’s 19 years!
While she had 3 different employers during that time (Dr. Kutcher personally, 3395022, and then Kutcher Dentistry Professional Corporation), the court found that they were all successive employers. Ontario judges have found that, where businesses have been sold or re-organized, an employee who retains their employment in the same position after the sale are entitled to rely on their employment history with the previous employer AND the current owner UNLESS there is an express agreement to the contrary. That wasn’t the case here.
Moreover, the court found that the facts of the case showed that Jasmine was primarily Dr. Kutcher’s employee at his perio practice. The terms and conditions stayed the same despite the different employers. The purpose of restructuring the employer was to benefit Dr. Kutcher personally and had no impact on Jasmine’s continuous length of service. Besides, it was Dr. Kutcher (and not his wife) who made the decisions about hiring and terminating staff on behalf of 3395022.
Now here’s where the court started ripping into Dr. Kutcher’s business and legal practices and finding that Jasmine had 19 years of service – not the 1 year of service per the 2011 agreement she had signed:
28 It may be open to Dr. Kutcher to employ accounting practices and tax laws to design the employer of the hygienists of his practice in a way that provides him with the most financial benefit. It is not open to him however to then use that structure as a sword against the plaintiff’s uninterrupted service to his practice. At all times, independent of the choice of employer as structured by Dr. Kutcher, the plaintiff was employed by the practice of Dr. Kutcher. It is the practice of Dr. Kutcher that was the plaintiff’s substantive employer for over 19 years. The plaintiff is entitled to rely on her employment history with the practice of Dr. Kutcher in the calculation of reasonable notice upon termination.
What about Jasmine’s resignation? Well, here the Court found that it had been rescinded prior to her effective date of termination on July 7, 2005. Both Jasmine and Dr. Kutcher were happy that she wasn’t going anywhere and she continued her responsibilities without interruption. Dr. Kutcher did incur some nominal out of pocket expenses looking for a replacement hygienist. And in a letter dated February 20, 2006 provided by Dr. Kutcher (for Jasmine to get financing), he indicated that she had been at the practice since 1993!
So did the court invalidate or disregard the employment agreements or part of them?
Basically, the court found that ALL three (3) employment agreements were unenforceable because Jasmine had not received FRESH CONSIDERATION (a new benefit) in exchange for agreeing to sign:
39 In my view, none of the three employment contracts signed by the plaintiff are enforceable. Each of the contracts fail respectively for lack of consideration. The evidence clearly demonstrates that the intention of Dr. Kutcher was that each of the three contracts needed to be signed or the plaintiff could not continue to be employed with his practice. While there is no evidence of threat or duress, Dr. Kutcher was firm in his testimony that continued employment was conditional on the signing of the agreements. The plaintiff and Ms. Graham both testified to their understanding of this fact pertaining to the 2011 agreement. The plaintiff received no more from signing each of the three agreements but for continued employment. The fact that she received independent legal advice pertaining to the 2011 agreement does not negate this fact. Further, the three agreements, if enforceable, would substantially reduce the plaintiff’s entitlements on termination.
So because those agreements are invalid, the clause limiting the employer’s liability IS OUT THE DOOR TOO! And the fact that she got independent legal advice on the third agreement didn’t change a damn thing! Those agreements were all invalid!
OH NO! 19 Years of Service + Invalid Agreements!
Now that Dr. Kutcher is on the hook to give reasonable common law (i.e. judge made law) notice based on 19 years of employment, the Court had to give the exact length of notice or payment in lieu thereof based on the Bardal v. Globe and Mail factors (a bunch of factors courts need to consider). The Court looked at some other cases and found that, because of things like Jasmine’s age (54 years old), hygiene position, length of service (19 years), training, qualifications, and ability to get employment elsewhere, she should receive 15 months of reasonable common law notice.
WHAT ABOUT TERMINATION FOR CAUSE?
Wait a second.. what about the whole thing about her being tardy and not being able to sell supplements? Was that enough to justify an IMMEDIATE termination without cause? The court said that there wasn’t enough evidence to support a dismissal for cause when these facts were discovered after the termination.
Now, that 15 months isn’t the end of it; the Supreme Court of Canada has stated that an employee is entitled to recover losses flowing from wrongful termination BUT that is subject to the employee’s efforts to mitigate their losses. Did Jasmine stand idly or unreasonably by, or did she try without success to obtain other employment? Here, the Court found that she did attempt to get employed in Hamilton as a hygienist but had a difficult time; she contacted over 100 dentists (per her testimony) and mailed her resume and physically attended offices to present her resume too. She interviewed in Grimsby but didn’t get the job. Dr. Kutcher offered to write her a reference letter if requested by a prospective employer. She eventually got a license to self-initiate and worked through a temp agency to develop her own business as a hygiene clinic. The Court concluded that she mitigated about $2,558.90 during the 15 month notice period.
Dr. Kutcher attempted to introduce the 2013 economic report showing there was a high need for hygienists in Ontario, but the Court rejected it on the basis that that report didn’t talk specifically about the Hamilton area.
The Court found that Jasmine was entitled to 15 months of reasonable common law notice totalling $71,650.02, less the $2,558.90 that she had mitigated.
Costs were left to be determined, but one would expect Dr. Kutcher to have to pay his own legal fees, plus hers as she was successful at trial (unless he appeals and wins).
- Always give fresh consideration when introducing a new employment agreement to your team members. Talk to DMC about what constitutes sufficient consideration.
- Make sure the termination provisions are properly drafted so that they can be enforceable by a court.
- Make sure you get an acknowledgment from the employee that their past length of service (perhaps with a different employer) WILL NOT be recognized for the purposes of a new employment agreement.
- Don’t make a move like hiring or firing a team member without getting solid legal advice from an experienced dental law firm.